Payment of Tax on Share Options RTSO

Introduction

Section 8, Finance Act 2003 (Section 128B TCA 1997) provides for a new scheme of payment of income tax in respect of unapproved share options exercised on or after 30 June 2003. In the case of share options exercised on or after this date an amount, known as Relevant Tax on a Share Option (RTSO), must be paid to the Collector-General not later than 30 days after the date on which the share option is exercised.

Liability to income tax does not generally arise (and therefore payment of RTSO is not required) where share options are granted under Revenue approved share option schemes. However, there are exceptions to this rule which are detailed below.

Calculation of RTSO

RTSO is payable on the gain (i.e., the difference between the market value of the shares at the date of exercise of the option and the option price) and calculated at the higher rate of income tax in force for the year in which the option is exercised (currently 42%).

If a person considers that his/her income for the year will be chargeable at the standard rate of income tax only, (currently 20%) a written application can be made to the tax office dealing with the person’s tax affairs seeking approval to pay RTSO at the standard rate. This approval must be obtained in advance of making payment of RTSO calculated at the standard rate.

Example of calculation

Example of calculation based on current higher rate of income tax (42%)

Share option exercised on 10 July 2003.

Market value of shares at 10 July 2003	€50,000
Option price	€30,000
Share option gain	€20,000
Amount of RTSO (€20,000 at 42 %*)	€ 8,400
*approval in advance required to calculate RTSO at standard rate

Payment of RTSO

Form RTSO1 is to be used for the purpose of making an RTSO payment to the Collector-General. This form is available on the Revenue website at www.revenue.ie or can be obtained by phoning 1890 20 30 70.

Date for payment.

The due date for payment of RTSO is 30 days after the date the share option has been exercised. As with other tax liabilities, interest is due on late payment.

Failure to pay RTSO

Failure to pay a tax liability, or to pay on time, can result in enforced collection through the Sheriff, Court proceedings or a Notice of Attachment under Section 1002 TCA 1997. Enforcement carries additional costs to any interest penalty charged.

Preliminary Tax

An RTSO payment is not to be regarded as a payment of Preliminary Tax. Any RTSO payable is to be disregarded in calculating the amount of Preliminary Tax to be paid for a year.

Completing a Return of Income

When a share option, giving rise to an income tax liability, has been exercised a Return of Income for the tax year in which the share option has been exercised must be completed. Revenue will arrange to issue the Return form in any case where RTSO is paid during the course of the year. The Return form should be completed with details of all taxable income for the tax year, including the gain on the exercise of the share option. The RTSO already paid will be set against the total income tax liability for the year.

Revenue Approved Share Option Schemes

There are two types of Revenue approved schemes:

• An approved Savings-Related Share Option Scheme and
• An approved Share Option Scheme.

Where the conditions of the approved scheme are complied with at both the Date of Grant of the share option and at the Date of Exercise a charge to income tax does not generally arise on the exercise of the share option and therefore no liability to RTSO arises.

There are, however, two limited circumstances when an income tax charge will arise on the exercise of a share option that was granted under a Revenue approved scheme. These are:

• Where a share option is exercised under an approved Savings-Related Share Option Scheme and, within three years from the Date of Grant of the share option, the company (that has granted the share option) is taken over, has a share reconstruction or is voluntarily wound up, etc.
• Where a share option is exercised under an approved Share Option Scheme and the shares acquired are sold within three years from the Date of Grant of the share option.

When either of these circumstances arises, RTSO is due and payable to the Collector-General within 30 days.

Further information

Any enquiry regarding calculation of the RTSO liability should be addressed to the individual’s tax office or telephone 1890 60 50 90.

Any enquiry regarding payment of RTSO should be directed to the Office of the Collector-General, telephone 1890 20 30 70.